Audit: Long Beach Water Department raised rates as cash reserves grew

LONG BEACH - The Long Beach Water Department raised rates in recent years to pay for projects that didn't go forward, charging customers more while cash reserves rose 566 percent, an audit said Monday.

The report by City Auditor Laura Doud also connected the swollen reserves to budget forecasts that predicted deficits when actual expenses and revenues produced surpluses.

LBWD water rates climbed by 15 percent in 2009 and 16 percent in 2010. There was no water rate increase in 2011 or 2012 fiscal years, and none is planned for the current 2013 fiscal year.

Sewer rates were hiked 20 percent in 2009, 22 percent in 2010, 9 percent in 2011 and 5 percent in 2012. No raise is slated for 2013.

While the department's rates still are low compared to other Los Angeles County cities and large municipalities across the state, Doud questioned the need for the cost increases made over the four-year period studied.

"If they raised the rates in order to fund the projects, I think they really have a duty to fulfill their responsibilities in getting those projects done," Doud said Monday.

Water Department officials declined to be interviewed Monday.

They instead released a statement regarding Standard and Poor's July financial review of the Long Beach Water Department that determined the operation had a good credit rating, with one of the primary factors considered being the strength of its reserves.

Between fiscal year 2009 and 2011, water capital improvement projects spent only 57 percent of the amounts projected, and sewer projects disbursed 25 percent of estimated costs, for a total of $33.3 million under budget, the audit found.

Management attributed the project delays to a number of factors, including engineering design delays, turnover of senior staff, holdups in the permitting process and customer-driven projects that stalled.

"Those are logical problems that would happen," Doud said.

"However, they didn't factor that in when they prepared their following year's budget."

According to the audit, at the end of the 2011 fiscal year, LBWD's reserve fund was $43.3 million. The Water Department mandated a $6 million reserve until 2012, when the policy was changed to cover 90 days of operating expenses, which then amounted to $9.8 million.

The reserve fund balance was expected to grow to $48 million in the 2012 fiscal year, which ended Sept. 30.

The report recommends that the LBWD establish a reserve that reflects actual operational needs and potential risks if the 90-day policy is insufficient, refine capital improvement program budgeting, ensure funds for future capital projects are allotted during the budget year they begin and engage in more in-depth reviews when considering rate increases, including an analysis of a hike's impact once it is implemented.

Doud will deliver the results of the audit to the City Council on Nov. 13 and has requested that the Water Department present an update in nine months on efforts to implement the report's recommendations.